Currently three major congressional committees are working feverishly to finalize language to repeal and replace the Medicare Sustainable Growth Rate (SGR). Whether they will succeed in protecting the practice of medicine from intrusive government interference remains to be seen.
The Balanced Budget Act (BBA) of 1997 created the SGR physician payment update formula, an epic failure in health policy. But the BBA also imposed an unprecedented statutory restriction on the right of doctors and patients to enter into private agreements outside the Medicare program to deliver services covered by Medicare.
The BBA allowed Medicare patients to enter into private agreements with doctors and pay them directly for any medical services covered under Medicare—but only if the doctor signed an affidavit of the contract, submitted that affidavit to the Department of Health and Human Services within 10 days of the agreement, and refrained from billing Medicare for the treatment of any other Medicare beneficiary for a period of two years.
So, under the terms of the statute, if a patient did not want to submit a claim to Medicare and pay a doctor directly—for any reason—she would not be able to do it unless the doctor could afford to give up his Medicare practice for two years. The unspoken assumption was that seniors might be gouged by predatory physicians, a class of professionals who bear special supervision—unlike, say, lawyers.
In 1997, the Clinton Administration claimed that the BBA “liberalized” private agreements between doctors and patients. Not true. No Medicare law specifically forbade private agreements between doctors and patients. And in previous federal case law, a federal judge (in Stewart v. Sullivan, 1992) also found that no law or federal policy forbade any such private agreements.
While Medicare has issued subsequent regulations, this insulting provision is still on the books. As Drs. Donald Palmisano, Daniel Johnson, and William Plested—three former presidents of the American Medical Association—have written, “The right of patients to privately contract with physicians to ensure they have the medical care they want, without penalty—regardless of what the government pays—must be recognized and protected.”
Another provision (enacted in 1989) forbids doctors to charge patients any amount above Medicare’s payment, i.e. a price control. A much better policy would allow doctors and patients to negotiate any difference between what the government pays and the doctors’ fees. Under such a policy, Medicare physicians would be allowed to accept the base Medicare payment and forgo any government bonus payment, but they would be required to disclose the prices of their services beforehand. This would create real price competition among physicians and drive innovation and quality in health care delivery.